Getting Around a Non-Compete Contract

A question I’m often asked by physician practices is how they can hire a provider they really like, but may have a non-compete with a prior employer (in states where such provisions are enforceable). There are several steps an employer should consider taking under such circumstances:

1. A physician practice should always ask to see the non-compete in the candidate’s current employment agreement (and should share with practice counsel). While this approach may not be necessary for a physician relocating from another state, it is appropriate when a physician switches practices within the same geographic region. In cases where a physician’s contract does not allow the contract terms to be shared (confidentiality provisions), I always request that the candidate’s personal counsel review and provide a letter representing her opinion as to whether or not there could be a potential breach. This approach assumes, of course, that the practice can rely on the physician’s counsel and would agree with her assessment. Contacting the old employer to obtain a copy of the non-compete is also an option, but not always viable if the employee has not yet informed the employer of his departure.

2. Once a practice knows of the non-compete provisions, it is important to look at mapping software or Google maps, and determine if an issue exists. Most non-competes reference a “radius” and this is interpreted to mean “as the crow flies” and not driving distance. This is an important distinction in measuring non-competes. Where the radius might come close to the new practice, there will need to be some important decisions made. For example, what if the non-compete is 10 miles from the old practice’s office or hospital, and the new practice’s office is 9.6 miles away? Will the old employer sue? Does the practice want to take a chance? In my experience, it’s unlikely an employer will take legal action based on such facts, but one can never provide any guarantees. Moreover, the physician practice (and their counsel) should stay away from arguments concerning whether the candidate’s non-compete is “reasonable” or “enforceable” in the first instance. Even if the non-compete is completely unreasonable, it’s not a battle on which the practice typically wants to expend its time and financial resources. Most small practices cannot afford such a legal battle.

3. Sometimes a practice will want to take a chance and see whether the old employer will bother enforcing the non-compete. This can work well if the violation is small (.4 miles) or the practice suspects the old employer simply does not care. It also works well if the practice has a strategy in place to relocate the physician to a different office should the candidate’s old employer take legal action or send a meaningful cease and desist letter. If the practice does not have the option of relocating the physician, they may have set up a legal scuffle with the old employer (and possibly both the physician and practice will incur legal fees and liquidated damages). The practice may, alternatively, be forced to terminate the candidate to avoid legal repercussions. For this reason, termination provisions should be carefully drafted when hiring a candidate with a possible non–compete issue. On a positive note, taking this approach may also open to the door to financial negotiation with the old employer to buy out the non-compete; however, this too is something many practices cannot afford.

4. I like to include language in my employment agreements where a physician represents to the hiring practice that he is not in violation of any contract with a third party, which would include a non-compete. This puts the burden on the candidate and can offer additional protection to the practice. Sample language might look something like this:

“Physician represents and warrants to Employer that Physician has full right, power and authority to enter into this Agreement, and that neither Physician’s entering into this Agreement, nor Physician’s performance of any of Physician’s obligations hereunder, will conflict with or be in violation of any contract or agreement with any third party. Physician hereby indemnifies, saves, defends and holds Employer, its shareholders, officers, directors, employees, agents and legal representatives, and each of them harmless from and against any and all loss, cost, damage, expense or liability of any kind (including legal fees) incurred by any of them arising from or connected to any and all claims, demands, actions or causes of action arising from or connected to any actual or alleged breach of any of the representations and warranties contained in this Section.”

When hiring a new physician, it’s important to ask the correct questions about obligations owed to a prior employer. Although a candidate may be highly desirable, the time and expense involved in hiring a candidate with a non-compete may not be worthwhile to a physician practice, and such decision should be made with proper legal guidance.